ECB’s Lane warns inflation to stay near 3% for rest of 2026

European Central Bank Chief Economist Philip Lane said on Tuesday that eurozone inflation is likely to remain "well above" the ECB's 2% target for the rest of 2026, hovering around 3%, as the fallout from the Iran war continues to drive energy prices higher.bloomberg

"Hovering around this 3% level is probably what people are looking at for the rest of this year," Lane told Ireland's RTE Radio 1. "But that very much depends on whether there is a resolution to the crisis. So it's really an uncertain situation".bloomberg

War-Driven Energy Shock

The warning is the latest in a series of hawkish signals from ECB officials about the persistence of inflation triggered by the U.S.-Iran conflict. The war and the subsequent blockade of the Strait of Hormuz disrupted global oil supply and sent energy prices surging earlier this year, pushing eurozone inflation to an estimated 3.2% in May. Lane had previously warned in late May that the energy shock would have a "persistent impact on inflation" even if a quick resolution to the war were reached.cnbc+1

The ECB raised its key deposit rate for the first time since 2023 in June, lifting it by a quarter point to 2.25% in response to the inflationary pressures. Markets are now pricing in an approximately 80% probability of another rate hike at the ECB's September 10 meeting, which would bring the deposit rate to 2.50%. Bundesbank President Joachim Nagel told CNBC in late June that the energy price shock was "still in the system" and that inflation was likely to "stay significantly above our target".morningstar+1

Corporate Casualties Mount

The tighter monetary environment is taking a toll on European businesses. Eurostat data published on Sunday showed that EU business bankruptcies rose 5.7% in the second quarter of 2026, reaching their highest level since the first quarter of 2019. New business registrations fell 0.5% over the same period. The euro area fared worse, with bankruptcy declarations climbing 6.9% quarter-on-quarter while new registrations slipped 0.1%.parstoday+1

The hardest-hit sectors included education and social activities, where bankruptcies surged 21.1%, followed by transport at 11.4% and financial services at 6.8%. The bankruptcy indicator had briefly declined at the end of 2025 and in early 2026 before resuming its upward trend.bignewsnetwork+1

Uncertain Path Ahead

Lane's remarks underscore the ECB's dilemma: raising rates further risks deepening the economic strain on businesses already struggling with elevated financing costs, while holding steady could allow inflation to become entrenched. The outcome, as Lane made clear, hinges largely on geopolitics. "It's really an uncertain situation," he said.bloomberg